![]() Failing to take an RMD, or taking an insufficient amount, can result in costly additional taxes. 1 The amounts of these required minimum distributions, or RMDs, will vary from year to year, depending on the value of your retirement accounts and your age. It’s generally a lower rate than what you’d pay on ordinary income from 401(k) plans, traditional IRAs and other tax-deferred savings. “Tapping taxable accounts first gives the other accounts the potential to continue growing, shielded from current taxes,” Storey says.Įven if you don’t feel ready to start withdrawing funds from your traditional IRAs and qualified retirement plans, the government generally requires you to do so once you reach age 73. That’s because the money you take from a taxable account (such as a brokerage account) is likely to be taxed at the rate for capital gains or qualified dividends, which varies depending on your tax bracket. In this case, the conventional wisdom goes that you should withdraw from your taxable accounts first, then tax-deferred, then tax-free. What’s the order in which I should tap into my retirement accounts? ![]() Your plans should be flexible enough to accommodate a variety of needs at different times.Ģ. Or you might have healthcare needs that dictate a higher spending rate. Some years you might plan to withdraw more in order to realize a long-cherished goal like travel, for instance. Other factors may come into play as well. ![]() It is important to remember that investing involves risk, and there is always the potential for losing money when investing in securities. On the other hand, if you desire less risk, you might opt for a lower withdrawal rate. “The younger you are when you retire, the lower the percentage you’ll be able to spend each year if you want your savings to last throughout your lifetime,” he says.īecause the likelihood of your money lasting depends on a delicate balance between the rate at which your investments appreciate and the rate at which you withdraw income from them - to say nothing of inflation - your withdrawal rate is in some ways a reflection of your confidence that your investments will continue to grow, or at least not shrink relative to your withdrawals. If you think your money might not last and you're comfortable investing more aggressively, you might decide to take a little more income each year. But that’s just a rough guideline, and one that doesn’t take into account variables such as the age at which you’re retiring and whether your income needs will change as you age, Storey says. How much can I spend each year without jeopardizing my savings?Īccording to one oft-quoted rule of thumb, retirees should look at tapping into about 4% of their savings annually. “Creating that plan requires you to be thoughtful about what your expenses are going to be and about how you’ll allocate your resources.”Īs you consider your personal equation for drawing down your retirement income, three primary questions are worth asking:ġ. “You need to come up with a plan for drawing down your income that’s based on your own unique priorities and goals,” says Ben Storey, director, Retirement Research & Insights, Bank of America. While there are often kernels of truth in these rules of thumb, they generally gloss over the fact that everybody’s retirement is different - and much too important to be guided by a formula. You may have heard some broad guidelines about the “right” amount to withdraw each year and the optimal order for tapping your various sources of income.
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